Smarz, Inc. is considering the purchase of a new machine which will increase operating revenues by $90,000 annually (1^st year will be $90,000 with 0% growth after that) and will increase operating expenses by $35,000 annually (1^st year will be $35,000 with 0% growth after that). The machine costs $80,000 and will require another $20,000 in shipping and installation costs. Smarz will use the Straight Line Method to depreciate the machine over its five-year estimated life to a $10,000 salvage value. Assume that the company plans to sell the machine at the end of four years for $40,000. The firm estimates that the new machine will require/cause the following net working capital changes: inventories will increase by $9,000, accounts receivable will increase by $3,500, and accounts payable will increase by $7,500. Smarz's marginal tax rate is 40% and their after-tax cost of capital is 10%.

a. Estimate their initial investment.

b. What are the periodic or cash flows from operations if Smarz makes this investment?

c. Calculate the necessary terminal or end-of-project cash flows.

d. Assume that you calculated an initial investment of $130,000, annual inflows of $30,000 for each of the four years from operations, and terminal cash flows of $20,000. Calculate the project's NPV, IRR, and payback period. What decision should Smarz make about this new machine?